Fidelity Investments has outsourced the management of its index funds. It did not look far to find the subadvisor, though. The winner of the mandate is Geode Capital Management, according to filings made with the SEC.

Geode's win of the $28 billion subadvisory mandate (it covers the Spartan Funds and Fidelity's Total Market Index) should not be much of a surprise to Fidelity watchers. The firm was until recently a Fidelity affiliate and its president owner is no other than long-time Fidelity fund manager Jacques Perold.

Perold is the portfolio existing portfolio manager for the Fidelity funds. The 45-year-old is leaving Fidelity after 16-year years to take the top position at Geode. Joining him will be a handful of other Fidelity employees, according to published reports.

Fidelity is spinning off Geode Investors after some observers noted that the firm raised possible conflicts of interest for Fidelity. The Boston Behemoth had used Geode to experiment with computer-driven and hedge fund like investment strategies. One strategy pursued by Geode was to use computer analysis to find targets for shorting.

However, that strategy raised the possibility that Geode would short stocks held in Fidelity portfolios. Since Geode used Fidelity funds for its portfolios, some observers worried about possible conflicts of interest.

By spinning the firm and the employees off those conflicts would be erased.

Fidelity will also reportedly continue to use Geode to test alternative investment products and a small number of Fidelity employees will retain a minority holding in the asset manager.  

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